Nokia Slashes Mobile Devices Unit Outlook; Shares Plunge

4/11/2012 10:21 AM ET

Nokia Corp. (NOK) slashed its outlook for the devices & services unit for the first quarter of fiscal 2012, saying Wednesday that the unit will now report an operating loss.

The move comes close on the heels of beleaguered mobile phone giant identifying a software glitch in its new flagship Lumia 900 Smartphones. The outlook news has sent Nokia shares crashing by nearly 15 percent.

The company said its results for the first quarter and the second quarter will significant benefit from lower warranty costs, partially offsetting the impact of harsh competition in India, the Middle East, Africa and China.

"Our disappointing Devices & Services first quarter 2012 financial results and outlook for the second quarter 2012 illustrates that our Devices & Services business continues to be in the midst of transition," President and CEO Stephen Elop said in a statement.

Espoo, Finland-based Nokia said it now anticipates non-IFRS Devices & Services operating margin for the first quarter to be about negative 3 percent, down from the prior expected range of "around breakeven", which is above or below by about 2 percentage points.

Looking ahead to the second quarter, the company currently projects non-IFRS Devices & Services operating margin to be similar or below the first quarter 2012 level.

Nokia said it is scheduled to report financial results for the first quarter on April 19, 2012.

The once-dominant player in mobile phone market suffered a $1.4 billion loss in the final quarter of 2011, amid plunging sales. It is taking the cost reduction route for a turnaround and has announced plans in February to reduce 4,000 jobs.

Nokia was hoping for a revival of the company driven by some early success for the Lumia devices that starting selling in November 2011. Lumia has gained market share with both distribution partners and consumers. It sold more than 2 million Lumia devices at an average selling price of about 220 euros in the first quarter.

Nokia said it will continue to increase its focus on accelerating Lumia sales, as well as on lowering the company's cost structure, improving cash flow and maintaining a strong financial position. The company added that the "difficult financial performance reflects company in transition."

"Within our Smart Devices business unit, we have established early momentum with Lumia, and we are increasing our investments in Lumia to achieve market success." Elop added.

Nokia launched its new Lumia 900 Smartphone with Microsoft Corp.'s (MSFT) software on April 8, and is currently available exclusively in the U.S. from AT&T, Inc. (T) for $99.99. The Windows Phone runs on its 4G LTE or long-term-evolution technology network, with a 4.3-inch ClearBlack AMOLED display and a long-lasting 1830 mAh battery.

Earlier in the day, Nokia was dealt a big blow after it identified a software glitch in its Lumia 900 smartphones, which is currently one of the Top 100 Amazon bestseller. The phone is critical for all three companies: Nokia, Microsoft and AT&T, to make a device that could dominant the U.S. market.

Nokia stated in a blog post that the glitch was a memory management issue and is not related to either phone hardware or the network itself. It cautioned users that the device in current form could potentially lead to loss of data connectivity. The company is likely to update the software on or around April 16.